Finance Committee on Dec. 4th, 2007

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Andrew.

Just to correct the record, the former chairman was Brian Pallister, and his riding is Portage--Lisgar, and the present chairman is Rob Merrifield, and his riding is Yellowhead. So I'm not sure what you were referring to in your brief.

[Bill Andrew]

Whitecourt is Yellowhead. I'm a little behind the times.

[The Vice-Chair, Liberal, Massimo Pacetti]

They're both Conservatives, just for the record. I'm a Liberal and the vice-chair. I used to be the chairman.

[Bill Andrew]

We do have operators in Liberal areas as well.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay.

On that note, from Meyers Norris Penny, we have Mr. Tait. Go ahead for five minutes, please.

[Gordon Tait, Partner, Meyers Norris Penny]

Good morning.

I'd like to thank the chairman and the committee for this opportunity to speak to you this morning. My name is Gordon Tait, and I'm a chartered accountant with Meyers Norris Penny.

I am here to address the circumstances of a small, highly productive, community-minded minority here in Canada known as Hutterites. Our firm represents over 300 of the 320 Hutterite colonies in Canada, and we have done so for over 45 years. We are here to ask for your support for amendments to section 143 of the Income Tax Act, which contains the provisions the Hutterite colonies are taxed under.

Specifically, we are asking that Hutterites, like other Canadian farms, be permitted to allocate a portion of their taxable income to members under the age of 18 who are actively involved in their business.

A Hutterite colony is a diversified grain and livestock operation. Colonies consist of 15 to 20 families and range in size from 60 to 150 people or more. As the colony grows in population, it will branch out or split, and it will purchase a new farm site and construct various agricultural and personal buildings and establish a new congregation. With the cost of approximately $15 million to $20 million for a new colony, we can be assured that any tax savings resulting from this request will be reinvested back into our rural economy.

There are approximately 30,000 Hutterites in the 320 colonies located across the west. The Hutterite religion is a Christian religion, and the members' fundamental belief is in the community of goods. The colony members share all things common, and they take a vow of poverty. Contrary to popular belief, Hutterite colonies are not self-sufficient. As does any other agricultural business, they require and purchase many goods and services in their local communities, including fertilizers, chemicals, feed, farm machinery and equipment, and vehicles.

Colonies are significant enterprises, with annual operating and capital expenditures of $3 million to $5 million per colony. That is about a $1.5 billion direct impact annually, likely helping to generate $7 billion to $10 billion in spinoffs. Colonies do not have a central buying group. They don't pool their resources or buy in mass quantities. Each colony operates quite independently and makes its own business decisions. There is no central pooling of financial resources.

Colonies play a very active role in their local communities. They support many charitable and community organizations with both their time and their finances. While significant in size as an agricultural operation, a colony supports 15 to 20 families. On a per capita or per family basis, colonies are quite small, with only 500 to 750 acres per family. They are a great example of a family farm, surviving and thriving because of their commitment to work and live together and to share.

Colonies are no different from any other farm or small business in Canada. Each member has responsibilities, and the young people are actively involved. Specific chores and responsibilities are assigned, and at the age of 15, Hutterites leave public school and begin their apprenticeship and training on a full-time basis.

The current income tax legislation regarding Hutterites puts restrictions on them that other Canadian farm businesses do not have. The legislation allocates the taxable income of the colony to specific individuals, but it does not allow an allocation to anyone who is under the age of 18. No other business is subject to an age restriction of any kind. They are restricted by the bounds of reasonableness.

Based upon the number of colony members under the age of 18 who are actively engaged in the farming enterprise, this restriction results in the loss of $22 million in non-refundable tax credits to Hutterites in Canada, which equates to a tax cost of $2.5 million per year. A Hutterite family will pay 45% to 50% more income tax than a non-Hutterite family. It is our submission that fairness and equity would be achieved if Hutterite colonies were permitted to allocate a reasonable amount of their taxable income to members under the age of 18.

We have had ongoing discussions with the office of the Minister of Finance and the Department of Finance, as well as several MPs, on this issue, and all of these discussions have been very positive and supportive. The changes that are being proposed represent a minor financial impact to the government but a significant amount to this small group of Canadians.

The history of section 143 goes back to the Carter commission of the 1960s, and this section has been updated only once or twice since then. We are not requesting anything special. We are looking to catch up with the rest of the act. It is with a focus on fairness and equity that we respectfully request this committee's support and recommendation that section 143 be amended.

I look forward to discussing this further or addressing any of your questions during question period.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

From the Poverty Reduction Coalition, we have Mr. Legge.

[Adam Legge, Director, Research and Business Information, Calgary Economic Development, Poverty Reduction Coalition]

Thank you very much. I am Adam Legge, volunteer committee chair for the Poverty Reduction Coalition. It's a community collaborative, supported by the United Way of Calgary and Area, that aims to reduce poverty in Calgary. We work collaboratively with all orders of government, the business community, social service organizations, and community members.

In terms of criteria to guide federal taxation decisions, we encourage the federal government to review its tax and spending programs through a filter that ultimately improves the well-being of all Canadians. We feel that decisions regarding taxation policy in Canada for individuals and for corporations should be based on three key concepts: incenting individuals to become skilled and to work; being globally competitive; and providing supports that will enable people to be part of the workforce to their greatest potential.

On incenting individuals to become skilled and to work, taxation policy should be supportive of individuals and companies that make investments in increasing skill levels and education. A highly skilled and trained workforce performs at the upper end of the value chain and results in higher returns. Both individuals and corporations benefit. Taxation policy should never discourage one from working, but unfortunately, the welfare wall experienced by many at lower income levels creates a disincentive to entering the workforce at a higher level of productivity and income.

Collectively, taxes and reductions in benefits should flatten and make the marginal effective tax rate an incentive to work rather than a disincentive. Canadians exiting social assistance through employment should be encouraged. In this regard, the federal government's commitment of $550 million per year to the working income tax benefit is to be applauded. This program should be increased to see greater advancement into employment by those on social assistance or at lower levels of income.

In being globally competitive, Canada's taxation rates should be competitive with other OECD and G-8 nations in order to attract and retain not only companies, but people, our most critical resource, particularly in a time of labour shortages. Studies by the CD Howe Institute indicate that some Canadians face a very high marginal effective tax rate, as high as 80%, depending on the province and the level of income, and therefore Canada is one of the most expensive jurisdictions in the OECD from a taxation perspective. Efforts should be made to reduce the marginal tax burden, particularly for those at lower income levels. Additionally, taxation reduction should focus on income taxation rather than on consumptive taxes. Canadians and corporations both benefit when we have a competitive tax system.

In terms of providing the supports that will enable people to be part of the workforce to their greatest potential, what the federal government needs from Canadians more than anything else is for as many as possible to be employed. Yet barriers exist for many to be employed. These barriers are those things that you and I take for granted every day. They include things like child care, elder care, transportation, and housing.

The recently introduced federal tax program given to employers who acquire day care spaces for their employees' families is a positive example currently in place. More of these programs are needed to assist with elder care and child care to enable more Canadians to be productive, earn income, and generate economic well-being. This would also include transportation support for those who need assistance with transportation.

Additionally, tax changes should also favour investments that grow the stock of affordable housing. Changes such as the elimination of capital gains on donations of real estate to registered charities that provide perpetually affordable housing would be beneficial. One interesting note is that under the current Canadian taxation system, one gains a greater benefit from donating land for ducks than from donating land for humans. Further, an elimination of GST on construction materials associated with affordable housing and affordable rental housing developments would create further incentives.

Both individual Canadians and their employer corporations benefit from an increased capacity to be part of the workforce and to focus on productivity and other life matters.

On behalf of Jim Dinning and Nancy Laird, our PRC co-chairs, and our 90 volunteers, thank you very much for the opportunity to present to you today.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Legge.

From the Public Service Alliance of Canada, l'Alliance de la fonction publique du Canada et du Calgary and District Labour Council, we have Mr. Christie. You have five minutes, please.

[Gordon M. Christie, Representative, Public Service Alliance of Canada and Calgary and District Labour Council]

Thank you. First I'd like to thank the committee for the opportunity to put forward our presentation this morning and welcome you to Calgary.

The Calgary and District Labour Council has approximately 30,000 members, and the Public Service Alliance of Canada has about 5,000 members in the Calgary district. In reality, we at the Calgary and District Labour Council, the voice of labour, truly try to represent the best interests of all working people in the city of Calgary, whether they have the privilege and opportunity to belong to a union or whether they're unorganized workers.

As we do our presentation today, we really feel it's about choices. We feel that taxation is about choices. I should go back and say that what we truly strive for, both the Labour Council and the PSAC, is equality in our society. That would include such things as the eradication of poverty and of child poverty. Taxation is about choices, and equality should be front and centre.

There are a lot of rosy things happening in Alberta, but a lot of things get left behind. The colleague before me talked about poverty reduction and things of that nature. I would echo a lot of those comments. A little-known fact is that what has happened in Calgary over the last couple of decades is that the gap between the rich and the poor has increased dramatically. In fact, when we go back to the tax year of 2003, Calgary became the capital of the rich—i.e., of high-income people and low-income people—and not only that, it was the highest divide ever in the history of Canada.

It has only gotten worse since. At that time, it was approximately $248,000 for the top 10% of wage earners and between $12,000 and $13,000 for the lowest 10% of wage earners. It works out to $19.10. As I said, that's the largest divide ever in the history of Canada, and it has only gotten worse since 2003.

We talk about taxation and about fairness. We need to do the things to change this, so that the divide between the low-income and high-income is reversing, not getting worse each and every year. We feel it was created over the last couple of decades not just by the federal government and its budgets, but more so by the provincial government and the local government as well—particularly the provincial government in going to a flat tax, which is great for some people but really negatively affects others.

I have to state that universality.... We don't believe in spending cuts for the rich. We have lived that. Twenty years ago I worked for the Alberta government, and the line there was, we're going to do the trickle-down effect. Well, let me tell you with absolute certainty, for the last thirty years, workers in the Calgary area have not been trickled down on. We have not received the benefits that have been portrayed by provincial and federal government leaders. The trickle-down effect on workers does not work.

We feel that taxes should not be cut, that tax cuts in the past have not benefited our society, and that in fact taxes shouldn't be cut. The money should be put into our fully funded public services.

To qualify that, they have to be universal. In public services, our priorities are a properly funded health care system, a properly funded national child care system, which I think is probably our priority, and also a national pharmacare system.

These aren't big, expensive items. We had hearings in Calgary about a month ago on the pharmacare issue. In fact, it would save the federal government money if we had a national pharmacare program.

It's things of that nature we would like to use our taxes wisely for, instead of taking tax cuts. We really and truly have to go back more to a system based on ability to pay and a fairer tax system, because flat taxes don't cut it. Tax cuts for the rich do not help anybody in our society, other than the extremely wealthy.

I want to bring people back to reality in Calgary. When I moved to Calgary in 1977, we had the highest minimum wage in Canada. It took 20 years for the Alberta government to achieve, by 1997, the lowest minimum wage in Canada. We have a lot of struggles here. It used to be that you could work for 42 hours and make the low-income cutoff line. In Calgary now, our minimum wage is $8 an hour. You would have to work 83 hours to afford a one-bedroom apartment in Calgary. If you were a parent with one kid, you would have to work 101 hours in Calgary each week just to make what it would cost to have 30% of your income going to pay for housing, for a two-bedroom.

We don't feel that the tax cuts we've seen are fair and that the tax system in Canada is fair in any way, shape, or form. We think it's totally disproportionate towards visible minorities, the aboriginal community, and women.

In fact, we find when we look at wages in Calgary.... We've developed a living wage at $12 here in our community, which I think is low as it is, but even at that we find when we look at the workers in Calgary making less than $12 an hour—and these are all our figures going back to poverty—that 60% of them are women; one-third of the disabled community in Calgary are in poverty; 50% of our recent immigrants are in poverty; one-third of our visible minorities are in poverty; 50% of one-parent families are in poverty; 20% of our children, i.e. one in five children in this city, are in poverty and in fact often go to school in the morning without food; and 25% of our elderly are in poverty.

To cap that off, we know for a fact that in the year 2007 there are almost 75,000 people in Calgary working for less than $12 an hour. These are the people who need tax relief, not the people who are setting record profits.

Just to go a little further on that, the reality is that when we look at low-income—

[The Vice-Chair, Liberal, Massimo Pacetti]

Can you just wrap it up?

[Gordon M. Christie]

Yes, I'll conclude here now.

When we look at low-income Calgarians, they spend each and every cent right here in the city. What we really and truly would like to do, to sum up, is increase spending in our health care, our education, our environment, poverty reduction, and our social infrastructure to take care of things so that there is tax fairness, and to add to literacy, and to look at all the individuals in our society.

We need to expand our services; we don't need to cut taxes. We've found it doesn't work.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you. That's fine.

You went way over.

[Gordon M. Christie]

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

From Simpson Roberts Architecture, we have Mr. Richardson.

[Neil Richardson, President, Heritage Property Corporation, Simpson Roberts Architecture]

Thank you for giving us the opportunity to present to you this morning. This is a joint presentation from Simpson Roberts Architecture and Heritage Property Corporation.

Simpson Roberts Architecture is an architectural firm that has a very large focus on the preservation and restoration of our historic buildings. Heritage Property Corporation is a developer that is focused exclusively on the restoration and sensitive rehabilitation of our historic buildings in Alberta.

What we are advocating today is a tax credit for historically designated properties through a federal rehabilitation tax credit. Such incentives are already available in Canada in the areas of environmental heritage and also for cultural objects and should be extended to Canada's built historic resources. Such heritage tax incentives have been proven to be successful in other jurisdictions. The United States has had a program for decades that has proven to be tremendously successful.

Given that all Canadians benefit from the restoration and preservation of our historically significant resources, it is only proper that the federal government provide the necessary tax incentives to encourage their preservation.

The benefits of restoring our historic buildings and preserving the built historic fabric are numerous. Regretfully, tax incentives are often a necessary catalyst for historic preservation, but they've been proven to be cost effective.

One of the benefits, which has been overlooked recently and should not be underestimated, is the environmental impact that restoring our built heritage affords us. The amount of debris that contributes to our landfill and the reduction of costs to municipalities to participate in and maintain landfills are a substantial benefit to heritage preservation.

Unfortunately, programs such as the LEED program, which provides incentives or certainly a way of monitoring construction practices and environmentally appropriate construction practices, simply do not consider restoration or renovation in their models. They're exclusively focused on new construction. So historic preservation is something that has been significantly overlooked.

If we intend to have a sustainable society, we simply can't build our way to that. We must restore and renovate our way to that.

The second part of our presentation is going to focus on a particular project in Calgary, the Lougheed Building, as an example of how a tax incentive helped restore this important building. The Lougheed Building was built in 1912 and it occupied a significant future development site in downtown Calgary. In 2001 a development permit was issued by the city to allow for its demolition and replacement by a high-rise office building. When we purchased the building in 2003, the purchase price alone for the development site made the project uneconomical. The only way the building could be preserved was with government support. Unfortunately, the economic incentives from the Province of Alberta, through grants offered from the Alberta Historical Resources Foundation, were insufficient to change the economics of the proposal. This was an approximately $30 million restoration project, and the maximum provincial grant was $100,000.

The federal government at the time had a grant program under the Commercial Heritage Properties Incentive Fund, and we were eligible for $1 million under that program. That was certainly a significant incentive. Regretfully, that program has since been cancelled, but in addition, that was only available if the building were historically designated, and there would be no guarantee, if it were designated, that the grant would be either fully or partially available.

The grant we did obtain from the City of Calgary, which was a $3.4 million grant paid over 15 years, was the catalyst for the restoration of the building. This grant was calculated based on the estimated increase of property taxes for the 15 years following the building's restoration, and it was successful, because we knew immediately upon obtaining historical designation, the building could be preserved. Such an economic-certain tax incentive could be and should be provided by the federal government.

From a developer's point of view, the only way our historic buildings will be preserved is if the federal government participates through a tax incentive program.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

What we will do is go to questions from the members. I'm going to allow them five-minute rounds. It includes the questions and the answers, so if you can keep your answers to a brief comment, it will help with the debate and increase the numbers of questions you're going to get.

I'm going to pass the floor to Mr. Richardson for five minutes.

[Lee Richardson, Conservative, Calgary Centre, AB]

I would like to follow up--first of all, no relation.

I was very impressed with what you did with the Lougheed Building. It's a remarkable undertaking and you had a lot of courage to tackle it, because everyone knew the escalating cost of how much you put into it.

Were you able to take full advantage of the existing federal program at the time? You wouldn't have got any more out of that anyway, would you?

[Neil Richardson]

We wouldn't have got any more out of the federal program. In fact, that grant comes into play when we're finished, so we will see that money about a year from now.

[Lee Richardson, Conservative, Calgary Centre, AB]

So you have to get there.

There was a lot of discussion about it around the city at the time of your undertaking, so there was a lot of public interest. Are there societies, foundations, from the private sector that are also prepared to contribute to maintaining historic buildings?

[Neil Richardson]

If the project is economically viable, the private sector will get involved.

The problem we have with heritage preservation is there are always so many more needs for the private sector to be involved in, be it poverty, be it health care issues. The demand for funds for non-economic projects or charities, societies, is tremendously limited, because there are always other good causes.

The grassroots of support is there. There are a lot of people who will put in time and effort, but the economics typically aren't there because there are other demands on their funds.

[Lee Richardson, Conservative, Calgary Centre, AB]

Okay. Thank you.

I also wanted to ask Mr. Tait, because I am not familiar.... I don't know why I was under the perception that colonies did not pay tax. You're telling me that they in fact pay more taxes than someone who lives in the city?

[Gordon Tait]

Yes. That is again I think a rather common misconception. In the mid-seventies, actually, there was a tax dispute that involved Hutterite colonies. It got an awful lot of notoriety and an awful lot of press. That dispute was resolved.

The current legislation of the Income Tax Act goes back to 1961, and Hutterite colonies have, by and large, been taxed the same way since then. In fact, my father, Logan, and another partner of Meyers Norris Penny by the name of Dave Norris were involved with the Department of Finance and the Carter commission back in the sixties.

Basically, there was a recognition that while it was a religious organization, it was also a farming organization, and the government developed section 143 to tax the business profits of that farming organization.

Colonies have paid tax under this method since 1961.

[Lee Richardson, Conservative, Calgary Centre, AB]

The difference is now that there is a difference in what young people are prepared to deduct. Is that the point you're making?

[Gordon Tait]

No. I think the biggest issue, as many in small business and/or agriculture would recognize, is that there's no recognition of the involvement of someone at a Hutterite colony under the age of 18. So if you take a child who is 14 or 15 years old, who is working actively in the farming operation, helping in the hog barn, the dairy barn, or on the farm, the colony is not permitted to either pay a salary or wage to that person and/or not put any income in that person's hands for the allocation of taxable income.

As a result, anyone under the age of 18 at a Hutterite colony is a tax nothing. In Canada's tax system, with federal non-refundable tax credits of approximately $9,000 per person, and in Alberta, non-refundable tax credits of about $15,000 per person, that inability to allocate income to someone who is very actively involved in the business creates that huge tax gap. All other farmers, all other businessmen, can allocate an amount to anyone involved in the business, provided the amount is reasonable for the amount of effort and contribution of effort expended by that person, so that's where the gap comes from. There's this inability to recognize anyone under the age of 18.